How to Purchase a Home with Bad Credit- When it comes to purchasing a home, this is perhaps one of the most important investments that you can ever make in your entire life. If you have bad credit, however, chances are you’re wondering if this is something that you will even be able to achieve even though you have a low credit score.
The simple answer is yes; however, there are two basic requirements that you will likely end up facing as a result, such as a higher interest rate and coming up with a larger down payment.
Here are six of the most important tips to consider making note of when it comes to purchasing a home if you have bad credit.
*First and foremost, you will need to take the time to determine exactly what your credit score is. There are many different places where this can be done for free, including credit card companies and banks. Additionally, keep in mind that Equifax, TransUnion, and Experian will all offer you credit scores, as these are the three major credit reporting agencies that do this. It’s never a bad idea to go to all three of these agencies to take a look at what your current credit score is.
*The next step involves checking for any and all errors on your credit report. Generally, your credit score is often calculated from credit data that is included in the report itself. There may be instances where you will encounter errors in the report that need to be corrected, as these errors have the potential to hurt your credit score. No matter what, it’s always important to ensure that your information is always accurate and up to date.
*The next step involves being willing to pay a higher interest rate. Even though you may have a lower credit score, you will still be able to qualify for a mortgage; however, you will also need to be willing to pay a higher interest rate. Many lenders will charge those borrowers who are credit-challenged higher rates in order to help protect themselves, as these same lenders realize that borrowers who have lower credit scores tend to have a history of missing payments and/or paying bills late.
*The next step involves submitting an application for an FHA, or Federal Housing Administration, loan. These are loans that come with credit requirements that are lower as opposed to more traditional loans. You will be able to qualify for this type of loan by coming up with a down payment of approximately 3.5% of the final purchase price of a home provided your credit score is at least 580. It’s also worth noting that these loans also come with a financial penalty, meaning that you will not be able to eliminate any private mortgage insurance throughout the loan’s lifetime.
*The next step, as previously mentioned, involves coming up with a larger down payment, which is typically 20% or more. This is one method in which lenders could be convinced to take a chance on you. Two different things can potentially end up happening when you take this step, such as showing a lender that you’re willing to take on more of the risk when it comes to a home loan and allowing the lender to believe that you will be less likely to end up walking away from a mortgage due to investing more money into the purchase itself.
*The final step involves taking the time to rebuild your credit. In the event that your credit is bad enough to where you are unable to qualify for a mortgage, then rebuilding your credit is perhaps your next best step to take before taking the chance of applying again. Thankfully, this is a process that is far from complicated, as you can take steps such as paying all of your bills on time and paying down as much of your credit card debt as possible.
If you are in the market for buying or selling a home, reach out to the Barton Harris group at Weichert Realtors.